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Monthly Archives: June 2013

Reverse Mortgage Myths

ReverseReview.com | Written by Pete Engelken | Mar 2012

A record nHouse-safe.jpgumber of people are entering retirement as the baby boomer generation approaches 65 years old. Between 2010 and 2030, the retiree population is expected to increase by 75 percent (from 40.2 million to 71.4 million).1  While this generation of retirees is healthier, more active and living longer than ever, many retirees are seriously unprepared economically for the financial requirements of retirement.

Over the past 20 years, we have seen a fundamental shift in how Americans prepare for retirement. In the past, the retirement income formula included three pillars: (1) Social Security, (2) employer provided and –defined benefit pension plans and (3) personal savings. Today, all three of these pillars are under stress. Our Social Security program is over-burdened and in desperate need of change to ensure its future health. Employers, once the guarantors of secure retirement for loyal employees, now have shifted retirement savings risk to individuals by replacing the previously defined benefit plan with newly defined contribution plans such as the 401(k). And responsible American savers have been hit with one of the worst investment decades since the Great Depression. To further complicate matters, many retirees of this generation are faced with costly maintenance and health care responsibilities for their own aging parents, who are also living longer.

Across all income levels, retirees are at risk of no longer being able to sustain their pre-retirement lifestyles. Based on the National Retirement Risk Index (NRRI), the majority of retirees surveyed face retirement risk. Five out of 10 high-income retirees are at risk of financial stress, while this number jumps to seven out of 10 for low-income households.2

Although these statistics sound bleak, the good news is that many options and viable solutions do exist to help people improve their chances of successfully achieving their retirement income goals and financial security. To help successfully navigate the retirement planning waters in this environment, one needs a comprehensive retirement plan that considers all available asset classes and resources, including among other possibilities, cash, fixed income, equities, guaranteed income and personal home equity. In fact, accessing home equity through a qualified reverse mortgage should be considered by retirees and financial planners in the overall retirement equation. Based on a 2010 Boston College study, when a reverse mortgage is considered in the equation, retirement risk may be reduced across all income segments.3

This is great news for Americans 62 years and older who collectively have more than $3 trillion of their wealth accumulated in the form of home equity.4 Home equity is too large an asset class for seniors and retirement planners to ignore when devising an individualized retirement strategy. When appropriate, there are two primary ways to unlock accumulated home equity in a personal residence: (1) sell the home or (2) borrow against the stored wealth. The first option, selling a home, may not be a preferred strategy for many seniors who often have deep emotional and physiological attachments to their homes and communities. In fact, 88 percent of seniors5 say they want to “age in place” and continue to live in their homes for as long as they can. A reverse mortgage can be a viable and affordable financial option for these retirees, who can gain access to additional cash flow while they continue to live and enjoy their home.

Over the years, I have come to know many financial planning professionals who do consider home equity as part of the retirement planning process when developing financial strategies with their clients, including clients of moderate to high incomes. These planners really understand the reverse mortgage product and its potential benefits and consider it a valuable alternative or supplement to other income sources in a sustainable retirement plan. However, a surprising number of financial and retirement advisors do not consider the potential benefits of a reverse mortgage and do not educate their clients on reverse mortgages because of basic misperceptions, confusion or general lack of product knowledge. So, what are financial advisors’ top misconceptions about using reverse mortgages?

1. A reverse mortgage should be introduced as a last resort.
I’ve had many conversations with financial planners who say they have clients who will get a reverse mortgage… in a few years. These advisors and their clients think about accessing home equity only after other assets are reduced. However, many of us in the reverse mortgage industry suggest that by waiting until such a late date to consider the use of a reverse mortgage, the planner may be missing some smart and creative planning opportunities that could help maximize the value of the client’s other retirement income resources, including Social Security benefits, retirement savings assets and pension plan distributions. In addition, home equity distributions may have advantageous tax consequences, which could result in numerous income tax planning benefits depending on the client’s individual situation. I will address a few of these potential planning opportunities later in the article. Further and perhaps more importantly, there is potential risk in waiting too long to consider the home equity option. Over time, the home equity cushion in a retiree’s home could decrease, as we have seen with recent depreciating home values.

Another risk is that the current government-sponsored and proprietary reverse mortgage programs may not always be available, and interest rates could begin increasing once again. Conversely, if better opportunities come along in the future, refinancing a reverse mortgage is an easy and affordable option.

2. It’s too expensive to do a reverse mortgage.
Too expensive compared to what? For this statement to make sense, we would need to compare a reverse mortgage to a similar alternative or substitute product. Yet I’m not aware of any other financial product that contains all the features, benefits, flexible payment options and consumer protections that the HECM reverse mortgage offers. This product was specifically designed to provide safe access to a percentage of a senior’s home equity by converting it into retirement income, with a government guarantee that the loan will be nonrecourse and that neither consumers nor their heirs will ever be personally liable for the debt regardless of whether the loan balance exceeds the home value when the loan becomes due and the home is sold. One of the most undervalued elements of the HECM program is the possibility for the consumer to request a line of credit or request equal periodic disbursements throughout the life of the loan. This is a very powerful feature, and one that provides flexibility and numerous financial planning opportunities. Many financial planners are unaware of the newest and lowest cost product in the HECM family, the HECM Saver, which nearly eliminates the initial closing costs and the initial mortgage insurance premium!

3. It’s better to sell and rent or downsize than to take out a reverse mortgage.
Not necessarily. Assuming that the client is not attached to his or her home, it’s nonetheless important to consider that selling and moving carries non trivial hard costs and opportunity costs. Selling and moving transaction costs can easily be $35,000 for a $500,000 sale assuming, 6 percent realtor commissions for the sale transaction and another 1 percent for moving expenses. As a renter, there is also a good chance that multiple moves will be required over time. If the senior elects to rent, he or she will have sold a valuable asset with the potential for appreciation in exchange for the inherent inflation risk associated with rental costs. If the client buys another home, there will be additional transaction costs incurred in the purchase, which takes another bite out of the home equity. After considering all the transaction and relocations costs, the net benefit to the consumer through a reverse mortgage could exceed the net benefits of other real estate transactions. With a reverse mortgage, homeowners (and heirs) retain any remaining home equity, after the loan is paid in full, at the time of sale. Moreover, the heirs have the option of either keeping the home or selling the home. Home retention and access to equity could also result in significant tax benefits to the homeowner. Interested seniors should consult with their tax advisors as the potential tax advantages exceed the scope of this article.

4. A home equity loan is better for my clients than a reverse mortgage.
Not necessarily. Traditional home equity loans and HELOCs typically require strict credit and income levels for approval by the lender, and they come with required monthly mortgage payments. Those monthly payments create a financial headwind if the client’s primary objective is to generate more cash flow. Furthermore, in the current economic environment, it is much more difficult for consumers to gain credit access to home equity loans, particularly for seniors facing reduced or limited incomes. In addition, most reverse mortgages have a nonrecourse clause, designed to prevent the client or his or her estate from owing more than the value of the home when the loan becomes due and the home is sold.6 There are no prepayment penalties with an FHA HECM reverse mortgage.

5. It’s legally challenging to offer reverse mortgages.
With the legislative and regulatory changes during the past few years, mortgage lenders and financial planners are more cautious than ever before in considering the cross-sale of financial services products and reverse mortgages, to ensure that reverse mortgage originators and financial planning professionals are not violating state and or federal laws.With properly designed safeguards and firewalls, reverse mortgage professionals can easily work with professional financial advisors to devise sound retirement and estate plans. It is important that both parties understand the state and federal laws and regulations, and that the lender is knowledgeable in this area and has established processes, procedures and compliance guardrails. Seniors, mortgage originators and advisors should avoid working with any financial planner who seeks compensation related to originating a reverse mortgage. With six out of 10 retirees dependent on financial advisors for retirement planning advice,7 it is critical as an industry that we effectively engage and educate planners on the potential benefits of reverse mortgage solutions for their clients.

For example, reverse mortgages may be used to help avoid retirement planning mistakes involving (1) inappropriate and inefficient utilization of Social Security benefits and (2) excessive distributions from retirement savings causing unnecessary and rapid draw-down. Using a Reverse Mortgage to Help Defer Ta king Social Security Today, record numbers of people are electing to take Social Security income distributions at age 62, which is the earliest age possible. Many financial planners suggest that healthy seniors delay as long as possible before starting their Social Security benefits, up to age 70. For example, a person who would receive Social Security benefits of $1,000/month at a full retirement age of 66 would get only $750/month if he or she claimed benefits at age 62. If instead, Social Security benefits were deferred until age 70, the same person would receive$1,320/month.8 This, however, is easier said than done. People are electing to receive their benefits early because they need the income to sustain their quality of life. That’s where a reverse mortgage can help. A senior can tap into home equity through a reverse mortgage to create an “income bridge” so that he or she may defer taking Social Security benefits until age 70. At age 70, the client can stop taking monthly distributions from a reverse mortgage and start taking Social Security benefits, which will then have nearly doubled for the rest of his or her life. Because any existing mortgage payments are also eliminated when taking out a reverse mortgage, there can be additional cash flow benefits for seniors.

Using a Reverse Mortgage to Stretch Retirement Savings Accounts
Many retirees have a very difficult time keeping their distributions from retirement savings accounts at a sufficiently low level to ensure their savings last throughout their lifetimes. Unexpected life events or health issues often come up, and low interest rates and poor equity market performance have resulted in low investment returns over the past several years.

One strategy for seniors and planners to consider is reducing the distribution from retirement savings each month and replacing it with a reverse mortgage home equity distribution from the HECM line of credit. By simply reducing the performance dependency of a single asset class, and adding a distribution from an additional asset class, the longevity of the retirement savings account can increase. This may help reduce the risk to the client of prematurely running out of money and depleting the retirement funds.

Avoid Reverse Dollar Cost Averaging
A reverse mortgage may also help seniors improve their overall portfolio returns over time. Many of us have heard about the benefits of dollar cost averaging while saving for retirement. The concept is based on a simple principle: If you invest a set amount in regular intervals throughout your working life, you’ll invest more of your funds at a lower average cost as the market moves up and down. In retirement, when taking systematic distributions from a retirement account, dollar cost averaging works in reverse, meaning you may withdraw more funds at lower values by selling more at lower prices. Assuming retirement savings are invested in the equity markets, one way to help avoid this phenomenon is to strategically use a reverse mortgage to take home equity distributions in lieu of retirement distributions during years following very low or negative returns in the equity markets. This gives your retirement savings a chance to rebound in future years when equity market gains return.

Reverse mortgage originators are well positioned to work in local communities and partner with financial planners to provide education on the benefits of a reverse mortgage. Remember that as a reverse mortgage origination professional, you are the expert on these products, and financial planners will need your assistance in determining whether a reverse mortgage fits into an individualized client financial objective or retirement plan. We are seeing more and more clients being referred by financial planning professionals, and this trend will likely continue as more baby boomers enter their retirement years. Please remember to seek detailed advice from a tax professional or accountant as necessary.

Keep in mind that you want to work with reputable, fee-based financial planners and work with a reverse mortgage lender who has well-designed policies, procedures and the regulatory guardrails to help protect the client, the professional financial advisor and the reverse mortgage originator.

Footnotes:
1. Retirement Population Statistics: US Census Bureau, US Interim Projections, March 2004 Table A.
2. NRRI Fact Sheet No1, March 2010. Center for Retirement Research at Boston College.
3. Home Equity Statistics: National Reverse Mortgage Lenders Association (NMLRA/Risk Span RMMI Q1, 2011).
4. Statistics on Aging in Place: AARP Home and Community Preference Survey, November, 2010.
5. Federal Trade Commission. Reverse Mortgages: Get the Facts Before Cashing in on Your Home’s Equity.
6. INFRE, Society of Actuaries, LIMRA Report. 2011. The Financial Recovery for Retirees Continues.
7. SSA Publication No. 05-10147, ICN 480136, July 2008.

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Study: 90% of Boomers Report Retirement Losses of $117,00+

Alyssa Gerace | June 11, 2013 Money

From low interest rates to lower-than-expected home equity, the Great Recession took a major toll on baby boomers’ nest eggs in a few ways that helped derail retirement plans, according to an Ameriprise Financial survey.

Ameriprise surveyed a group of 50- to 70-year-olds with at least $100,000 in cash savings and found that 90% reported experiencing at least one economic or life event that negatively impacted their retirement savings by an average of $117,000.

Another 40% said they were hit by five or more unexpected events, with average losses totaling $144,000.

“The lesson that we are taking away is expect the unexpected,” said Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial, in the report.

The most commonly cited “derailer” stemming from the Great Recession? Low interest rates, according to 63% those surveyed, which have impaired the growth of retirement assets (63%)

Other top derailers for retirement savings, according to Ameriprise, have been market declines (55%) and lower-than-expected home equity (33%). Retirement prospects for another 18% were compromised by job loss, while 23% cited supporting grown children or grandchildren as a derailer.

“The financial fallout from these events can be dramatic, costing Americans an average of $117,000 in savings,” said de Baca, adding that affluent individuals with investable assets of $750,000 or more took an average $177,000 hit.

As a result, nearly half of those surveyed reported less retirement savings than they had expected. Only 18% said their nest egg is larger than expected.

The research uncovered an “alarming” trend, says Ameriprise: As a whole, Americans nearing retirement are underprepared. The survey uncovered an approximately $250,000 gap between what respondents think they need to retire, and what they’ve actually set aside. More than half said they wished they had started saving earlier.

However, only 35% believe their ability to afford essentials in retirement will be affected ‘a lot’ or ‘a fair amount,’ while more than two-thirds still charactizer their road to retirement as ‘smooth’ rather than ‘bumpy.’

 

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Financial Planning and the HECM

“The Reverse Review” | Written by Jessica Linn Guerin

life-settlement-awareness-moneyThe Home Equity Conversion Mortgage has been around since 1989, but its original application was intended to be somewhat one-dimensional: a singular financial product designed to help seniors age in place. But now, as the product has evolved to include options like the Saver, new ideas are surfacing about how a retiree can tap into home equity as part of a strategic financial plan.

Just this year, prominent economic researchers published two independent studies, both examining in impressive detail various ways in which home equity could be used. Data was collected, simulations were run and the analyzed results all pointed to one simple fact: The HECM product could be leveraged to help certain retirees attain a livable flow of income.

For most financial planners, many of whom have long been wary about the product, this concept is a novel one. Traditionally, the planning community has viewed the HECM as a last-resort option for desperate retirees. It was considered an expensive option and not a feasible one for more affluent clientele. Now, these studies, published by the respected Journal of Financial Planning, are touting new and strategic ways to use home equity. They both suggest that planners reconsider a HECM for their clients, as retirees could benefit from employing the product to access tax-free income in a down market when cash flow is weak. The research piqued the interested of the press as The Wall Street Journal, CBS News and others picked up on the buzz.

The reverse mortgage industry was notably enthused (Finally! Financial planners are taking note!), but now many are left wondering what, exactly, they can do with this information. What are these studies really suggesting, and how can professionals in the reverse space use this information to enhance their business?

The Saver
The single most important factor in this new acceptance from the financial planning community is the HECM Saver. Introduced by the FHA in October 2010, the Saver was designed to address concerns about the HECM’s high upfront closing costs.

Homeowners utilizing the Saver option can’t borrow as much money as they could with the Standard (10 to 18 percent less, in fact), but in turn, they encounter significantly lower upfront closing costs. With the Saver, homeowners only need to pay an upfront premium of 0.01 percent of their property’s value, compared with the Standard’s required 2 percent.

By lowering the cost associated with a reverse mortgage, the introduction of the Saver eliminated the point of contention that prevented many financial planners from considering the product in the past. It also made the strategic uses discussed in recent research a viable option.

The Sacks Brothers
In February 2012, the Journal of Financial Planning published a groundbreaking article by brothers Barry and Stephen Sacks that examined how a reverse mortgage could be utilized to free up liquidity when the market is down.

The Sackses were inspired by the fact that, although more than 50 percent of retirees get a portion of their income from Social Security, a sizable number rely on securities portfolios to generate most of their income, usually in the form of a 401(k) or IRA.

“I was interested in the quantitative aspects of how to use these 401(k)s to achieve optimal results,” said Barry, a San Francisco-based real estate tax attorney with a Ph.D. in physics. “The object of the game was to make a securities portfolio last longer.”

Barry said he originally played around with different annuity models before “a light bulb went off in my head—there’s this home equity option!” The results of his initial numerical simulations were “so striking” that Barry enlisted his brother Stephen, a Ph.D. and professor emeritus in economics at the University of Connecticut, and together they conducted a lengthy study to examine how a reverse mortgage credit line could be leveraged to maintain what they call “cash flow survival.” The goal was to utilize the liquidity afforded by a reverse mortgage to avoid withdrawing from a stock portfolio when the market is down, keeping the portfolio intact and thereby increasing its potential to grow.

The Sacks study examined three strategies: a conventional, passive strategy that taps into the equity only when all other resources were exhausted; an active strategy in which the credit line is drawn upon after other investments have underperformed; and another active strategy in which the credit line is drawn upon first before other investments are tapped.

The results indicated that a portfolio’s survivability substantially increased when the active strategies were employed. The models revealed that in a 30-year period, a retiree’s residual net worth was about twice as likely to be greater when the active strategies were used. The results led the Sackses to conclude that in certain situations, a senior homeowner is best served by taking out a reverse mortgage early on in retirement and keeping the line of credit to draw upon when a portfolio lags.

Evensky & Salter
Not long after the Sacks article was released, retirement expert Harold Evensky and Dr. John Salter of Texas Tech went public with their own, yearlong study on the topic. First published in Financial Advisor magazine and recently picked up by the Journal of Financial Planning, the study also examined how seniors can tap into home equity to increase the survivability of their portfolios.

According to Evensky, a nationally recognized expert on the topic, the goal was to tackle the issue of wealth distribution in retirement. “It’s a major issue in planning today,” Evensky said. “How do you manage with constant withdrawals in a volatile universe?”

According to Evensky, he and Salter solved the puzzle. The answer? The HECM Saver.

Although Evensky admitted that he was originally reluctant to consider the HECM (“Like most practitioners, I considered them only appropriate as a last-ditch effort”), his opinions of the product changed when he learned about the low costs associated with the Saver. “The cost of setting it up is really quite modest,” Evensky said.

He and Salter used the Saver in simulations to analyze how a reverse mortgage line of credit could be leveraged to prevent an investor from liquidating a portfolio at the wrong time, when the markets are down and the investment would be a loss. “When you distribute money when a portfolio is down,” added Salter, “you’re stealing from the future.”

And so the duo determined that with the line-of-credit option, one could employ an “insurance-type strategy” in which the equity is tapped to provide supplementary income only when needed. When the markets bounce back and the portfolio recovers, the reverse mortgage is paid off. But in some cases, it won’t even be needed. “Our research suggests that a large percentage of investors would never even tap into it,” Evensky said, adding that if they do, the simulations indicate that most investors will have the ability to repay the loan fairly quickly.

“We asked ourselves, ‘Does this make our clients more likely to meet their retirement goals?’ And the answer turned out to be yes,” Salter said. “Through all the combinations, the strategy was successful. We simulated thousands and thousands of different possible scenarios.”

The researchers determined that using a HECM was an extremely viable financial strategy, and they recommend practitioners establish the Saver for qualified clients as a standby reserve. “It’s a very powerful risk management tool,” said Evensky. “It is key to managing market volatility.”

Boston College’s Retirement Research
An April study released by Boston College’s Center for Retirement Research further solidified the idea that financial advisors need to embrace the HECM. The study analyzed the percentage of income an individual needs to replace once he retires. The results, which included data on savings and investment strategies, suggested that 74 percent of retirees would fall short of their income needs at 62—an alarming statistic, to say the least.

The study set out to analyze ways in which this bleak situation could be improved. First, it examined the possibilities of asset allocation, looking at what would happen if an individual invested 100 percent of his portfolio in “riskless” stocks, earning 65 percent a year after inflation. There is, of course, no such thing as riskless stocks, but the idea was to present a best-case scenario. Even with this perfect investment, the study concluded that 44 percent of retirees would still fall short of income. The point is that asset allocation by itself—even at its most perfect—isn’t enough to turn things around.

The study determined that the traditional focus on asset allocation is misplaced. “Financial planners often tout asset allocation to boost retirement preparedness,” the brief states. “Even for households with substantial financial assets, asset allocation is less important than one would expect.”

Instead, the study concluded, people are left with few options if they want to maintain a livable income in retirement: work longer, cut spending and consider a reverse mortgage. That’s right—the study concluded that tapping into home equity was a powerful tool in assisting a retiree in achieving his income goal. It found that a reverse mortgage delays the age in which a retiree would run out of funds more than any other mechanism. “Given the relative unimportance of asset allocations,” its conclusion read, “financial advisors will be of greater help to their clients if they focus on a broad array of tools—including working longer, cutting spending and taking out a reverse mortgage.”

The Financial Planning Community Reacts
The recent buzz surrounding the use of HECMs has captured the attention of CFPs, leading many to reassess their opinions about the product.

Michael Kitces, a highly accredited financial planner and renowned industry expert, said he has seen a recent change in attitude among his colleagues.

“A few dynamics have been shifting lately,” Kitces said. “Part of that is the low-interest-rate environment and part of it is a general growing awareness of reverse mortgage programs and how they work, and the creation of the Saver. The lower cost has done a lot to improve the product in the minds of planners.”

He said the recent studies have helped break down the planning community’s notion that utilizing a reverse mortgage will detract from an individual’s net worth. He acknowledged that for more affluent individuals—who constitute the majority of a planner’s clientele—a reverse mortgage can work in all the ways outlined in the research. “If you want to make it work, you have to start early,” he said. “You borrow to slow the degradation of a portfolio and glide into the leverage of the reverse mortgage.”

Kitces said that despite the research, the number of planners out there implementing HECMs is still miniscule. “I’m trying to push the conversation out there,” said Kitces, who writes a blog for financial planners called Nerd’s Eye View and regularly travels the country speaking to various financial associations and CFP groups. In his highly circulated Kitces Report, he has discussed the complexities of reverse mortgages in depth.

Although Kitces said he’s noticed an uptick in conversation recently regarding the HECM, he doesn’t predict an immediate change in thinking. “It’s a trend that will catch on, but it will be very slow,” he said. “I don’t think you’ll see a tidal-wave shift anytime soon.”

Like Kitces, Rob Hoxton, a CFP and president of HFI Wealth Management in West Virginia, said newly proposed uses for the HECM have intriguing possibilities, but investors might be slow to come around to the idea.

He admits that part of the battle is altering a client’s mindset. “So many folks have worked their whole lives to pay their house off, and we’re talking to them about re-mortgaging it,” he said. “That requires a shift in the way they think. You have to help them understand that unless the home is a legacy asset, one that has a strong emotional tie they want to pass on to the next generation, they should leverage that asset. It’s a paradigm shift, really.”

Hoxton said less than 10 percent of his clients have actually utilized a HECM, but acknowledges that a large percentage would likely benefit from it.

“My guess is that demand for this type of product will increase, and then it may create a more competitive environment with greater transparency and lower fees,” he said. “The concept is a fantastic one.”

Melissa Sotudeh, a CFP with Warner Financial, said she has also noticed an increase in conversation surrounding the HECM.

“It’s coming up more often,” Sotudeh said. “People are taking a second look at the product, and part of that is because we are becoming more aware of the different uses. Like the HECM for Purchase—I had no idea that was possible, but when it came on my radar, I thought, ‘Wow, that could really work well.’”

Sotudeh thinks most planners would be eager to learn more about the product. “I tend to read anything that comes on my radar about reverse mortgages to make sure that I understand them completely,” she said. “From our perspective, as fiduciaries, the more we know about what’s available, the better we can do. If we understand the products out there, it adds value to the advice we give.”

Barry Sacks also said that more and more CFPs are taking a second look at HECMs, and like Kitces and Hoxton, he predicts that acceptance will come slowly. “Financial planners have begun to show interest, but they’re a harder bunch to get through to,” Barry said. “They still have a residual negative view about reverse mortgages, which in my opinion is unwarranted.”

But Barry said he does believe that eventually they will get on board. “I think it will be slow and fitful,” he said, “but in five or 10 years, they will likely come around.”

Harold Evensky agreed. “They absolutely will,” he said. “For one, the research is very credible. It’s an immensely high-quality academic research paper. I would tell them to look at the research. I don’t think they’ll be able to disagree with the research.”

But Evensky did predict that some advisors will have an initial knee-jerk reaction, automatically dismissing the product before really listening to its possibilities. “Practitioners are reluctant to tell people to take on debt,” he said. “They just need to understand. It’s not a last resort—it’s a strategy! The expectation is that the investor would not maintain the debt.”

Although he said the product is bound to pick up steam, he admitted that the going might be tough. “It will be an uphill education process,” he said. “No question about it.”

John Salter, who admitted that his own view of the product has changed “180 degrees” since last year, also said that educating the advisors would be challenging, but also essential.

“We need to continue the march to educate financial planners, get them to open up their ears and listen,” Salter said. “Help us educate them on the product and keep the conversation going, that’s the biggest thing.”

 
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Posted by on June 13, 2013 in Uncategorized

 

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Will Google’s Robo-Cars Drive Senior Independence?

Jason Oliva | May 17, 2013 (Reprinted with permission)

Will Google’s Robo-Cars Drive Senior Independence?

The idea that seniors’ cars could one day function as their own personal chauffeurs is becoming a present-day reality. At least that’s the case for driverless cars as Nevada, Florida and California have adopted laws that allow these “autonomous vehicles” to cruise their cities’ highways, byways, boulevards and avenues.

The technology is not yet available to the public, but it may be in the next 10 to 15 years, says Jude F. Hurin, DMV Services Manager III of Management Services and Programs Division at the Nevada Department of Motor Vehicles.

“It’s very real and can come very soon,” says Hurin.

Steering this innovation is none other than the Silicon Valley tech giant, Google, having received its “driverless license” from the Nevada Department of Motor Vehicles in May 2012.

Google’s car turns, brakes and accelerates all on its own, using video cameras, radio sensors and a laser range finder to “see” other traffic. Detailed maps stored within the car’s database help it navigate the road ahead, according to Google engineer Sebastian Thrun, who is also director of the Stanford Artificial Intelligence Laboratory.

The driverless car is one of the latest projects undertaken by Google X, the company’s “secret” laboratory facility whose reported other projects include out-of-this world innovations like space elevators and Internet-enabled eyeglasses.

This type of technology could mean greater independence for millions of seniors nationwide, even though they are not actually driving the cars themselves, says Heather Hawkins-Fancher of the Nevada Department of Motor Vehicles.

“[Driverless cars] still provide seniors with mobility, so they do not have to rely on family members to carry out their daily routine activities,” says Hawkins-Fancher. “It would help them not feel like they’re trapped.”

Hawkins-Fancher, who has experience working the DMV counter, can attest to the sense of loss that comes along with having a license revoked, especially when health issues have become an obstacle to operating a motor vehicle.

While renewal provisions may vary from state to state, 28 states and the District of Columbia require additional procedures for older drivers, according to the Insurance Institute for Highway Safety (IIHS).

For drivers older than a specified age—typically 65 or 70—renewal procedures include accelerated renewal cycles that provide for shorter periods between renewals, a requirement to renew in person rather than electronically or by mail.

If a person’s fitness to drive is in doubt because of the person’s appearance or demeanor at renewal, IIHS notes that state licensing agencies may require applicants to undergo physical or mental examinations or retake the standard licensing tests (vision, written, and road).

Google’s innovation can come in handy here, she suggests, as the vehicle’s 360-degree camera can provide a range of scope that reaches beyond the peripheral capabilities of the human body.

A segment from CNN last year even showed that a blind person could get from point A to point B using Google’s driverless car.

“The most exciting piece of that [segment] is that individuals—whether seniors or handicapped persons—who have had their driving privileges taken away because of their situations, can get those privileges back,” says Hawkins-Fancher.

In Nevada, drivers must renew their licenses every four years. There is no accelerated renewal cycle for older drivers as state law specifies that “age alone is not a justification for reexamination,” however, drivers aged 70 and older must provide a medical report if they wish to renew their license by mail, according to IIHS.

For those unnerved by the thought of a computer behind the wheel, the state of Nevada has developed a series of regulations Google must meet before taking its self-driving car to the streets.

The most significant of these regulations included a compliance certificate to ensure that Google’s invention was in fact safe for public roadways, says Hurin.

The certificate, according to Hurin, says that the vehicle meets safety standards within Nevada state laws.

“It takes liability away from the Department by placing more responsibility in the hands of vehicle owners and manufacturers,” he says.

The Nevada DMV had to see firsthand these vehicles’ safety features before passing AB511 in June 2011, the law that legalized driverless cars in the state.

While autonomous vehicles may be a decade away from the public’s grasp, the time for an “older driver vehicle,” might already be here, according to David Eby, a research professor and head of the Behavioral Sciences Group at the University of Michigan Transportation Research Institute (UMTRI).

“With age comes the greater likelihood of age-related health problems,” says Eby.

Because of this, he continues, there is a demand to design a car that helps older adults overcome age-related deficits.

Senior design features include ingress and egress seating that makes it easier for older adults to get in and out of the vehicle; comfortable seating; visibility; dashboard design that is not confusing; as well as a navigation system.

“There’s a whole class of things, ranging from simple to complicated,” says Eby. “The key is not to overload seniors with information they can’t use at the time.”

A key issue here, according to Eby, is that not all older drivers are the same.

Brenda Vrkljan, Ph.D., and associate professor of occupational therapy at McMaster University, shares a similar sentiment.

“There’s always a fine line between advanced technology and distraction,” says Vrkljan. “Since many older adults have a difficult time with divided attention, it is important to include them in the design process.”

Part of the Candrive project, a Canadian research network dedicated to improving the safety of older drivers, Vrkljan finds that when seniors are looking for a vehicle, they are not particularly concerned about price or reliability, but rather about finding the best fit that suits their particular needs.

Unfortunately, there is a stigma against older drivers that dissuades automobile manufacturers from addressing the transportation needs of an older demographic, suggests Vrkljan.

“Seniors are an important consumer group,” she says. “Like most people, they want the biggest bang for their buck.”

Even if auto manufacturers take notice of an older consumer pool, research will have to be done as to how to market a car for older drivers, says Eby, because seniors are not going to want to drive something that is advertised as an “old person’s car.”

“Driving is important to everyone in the U.S., especially for older people since there are little alternatives,” he says.

Written by Jason Oliva

 
 

Reverse Mortgages Have 2 Notes and 2 Deeds of Trust?

Number 2  When it comes to signing final reverse mortgage loan documents, borrowers are    often concerned when the notary presents them with two Deeds of Trust (or mortgages, depending on the location of the property) and a First and Second Note. To further complicate it, the Deed of Trust shows an amount much higher than anticipated and what was agreed upon. The concern over these items has caused several borrowers not to sign their final loan documents, which is why we strive to educate our borrowers prior to the final signing in order to prevent possible confusion.

The quick answer to why reverse mortgage loans have 2 Deeds of Trust and 2 Notes is that the first deed of trust secures the lender’s position and HUD assumes the second position because HUD is insuring that the homeowner will continue to receive loan payments in the event that the lender becomes incapable of making said payments.

Going a little deeper into the explanation, the following quotes are direct from HUD Handbook 4235.1 REV 1. They discuss that every HECM reverse mortgage, fixed or adjustable, shall have a first and second Mortgage and Note. The borrower must only be presented with a copy of the first Note during the application process, but the existence and relationship of the second Note must be fully explained.

“A. Mortgage and note. The lender must provide a copy of the first mortgage and the appropriate first note (fixed or adjustable rate) for review by the borrower during the application process (see Paragraph 4-7), but not later than when the borrower signs the URLA.

B. Second mortgage and note. The lender must complete a second mortgage and second note (fixed or adjustable rate) to secure any payments made by HUD to the borrower. A copy of the second mortgage and second note need not be provided for review by the borrower during the application process, however, their relationship to the first mortgage and first note should be fully explained. The second mortgage and second note secure any mortgage payments which might be made by HUD to the borrower in the event that the lender fails to make the payments under the loan Agreement.”

What the above quote says is that if the lender is unable to make payments to the borrower, then due to the second mortgage and note, HUD can step in and continue making the payments.

Additionally, the lender has the right to assign the reverse mortgage to HUD when the outstanding balance is equal to or greater than 98% of the Maximum Claim Amount, or when a request for a line of credit draw will cause the outstanding balance to equal or exceed 98% of the max claim amount. After assignment, HUD will be responsible to making all future loan advances. The second Note and Deed make this assignment possible.

Without having 2 mortgages and notes, HUD would not insure the loans and without HUD insuring the loans, lenders would not be willing to make them.

Moving on, the reason for the larger loan amount on the loan docs is that due do the fact that there is no maturity date with a reverse mortgage, HUD has designed a calculation by increasing the amount on the deed of trust by 150% of the maximum claim amount or appraised value, whichever is less.

Since reverse mortgages require no payments and the loan balance increases over time, HUD policy does not require a maximum mortgage amount to be stated in the mortgage; however most states do require an amount be stated. If the beginning balance of the loan was stated, then no amounts beyond this balance could be forwarded to the borrower.

Using an example, if a home appraised at $300,000, the amount recorded on the Note and Deed would be for $450,000. Similarly, if a home was valued at $625,500, the amount on the Deed would be $938,250. Since the current lending limit is $625,500, any home that appraises beyond $625,500 will also have $938,250 recorded.

The most important item to note is that the amount of money you owe on your reverse mortgage is equal to the money you borrow plus and accrued interest, mortgage insurance and financed fees.

So, when you go to sign your final paperwork remember that reverse mortgages have 2 Notes and 2 Deeds of Trust (or Mortgages), the amount on the loan documents will be equal to the 150% of the lesser of the maximum claim amount or appraised value and you owe only what you borrow, plus accrued interest, mortgage insurance and financed closing costs.

 
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Posted by on June 1, 2013 in Uncategorized